PM forms 11th committee,
headed by Dar, to resolve the IPPs issue which is the main hindrance in the release of IMF
tranche

From Shamim Ahmed
Rizvi, IslamabadAugust 9 - 15, 1999

Finance Minister Ishaq Dar who led the Pakistani team to Washington to
negotiate the pending issues with IMF reportedly had a very tough time on
non-implementation of the commitments made by Pakistan to the IMF mission. The IMF
authorities took the unresolved dispute of Independent Power Producers (IPPs), having
foreign investment, very seriously and expressed their dis-satisfaction over the situation
that government has not been able to resolve the IPPs issues despite its repeated
commitments made during the last 2 years.

Strong resentment of the IMF was promptly conveyed to the Prime
Minister who took immediate action and, superseding all previous committees on the
subject, appointed a 2-member committee, headed by the Finance Minister and Lt. Gen.
Zulfiqar Ali Khan, Chairman WAPDA as its member, to finally resolve the issue within 2/3
months. This is the 11th committee formed by the Government of Pakistan to resolve the
dispute with the IPPs lingering for over 30 months since the present rulers came into
power.

The IMF authorities were also critical of one step forward and two
steps backward pattern of Pakistan's economic reforms which had been agreed upon in the
past and the Government of Pakistan was firmly committed to implement them. The Government
of Pakistan has been muddling with finance-related problems but the international
financial institutions have refused to accept any further commitment and the present
stop-go pattern of structural reforms and economic satisfaction measures. It is amply
manifest from the present round of negotiations in Washington when the IMF, instead of
making any outright commitment, announced to send a monitoring mission to Pakistan and
linked the release of next tranche with the report to be submitted by the mission.

Among other things Pakistan is committed to take concrete measures to
increase revenue generation by at least Rs 40 billion through increase in prices of gas,
petroleum and electricity, levying GST on services and utilities and through a meaningful
increase in the tax on agriculture income.

Pakistan is caught in a liquidity crisis in implementing a broad based
structural reforms programme. Dispute with IPPs and freezing of foreign currency accounts
(FCAs) have substantially reduced the flow of private external resources into the country,
increasing reliance on the multilaterial flows to stay afloat. While living on the
borrowed resources, Pakistan can not afford to lose the support of donor agencies.

Pakistan's programme with the IFTs faced problem mainly on the IPPs
issue, economic revival of the public sector entities and additional resource
mobilization, including a tax on the agriculture income and broad basing of GST, to
stabilize the budget.

Re-opening of the power purchase agreement (PPAs) file, on charges of
corruption, was part of the election manifesto of the PML government. However, during the
last two years not a single case was proved in a court of law. Arm twisting tactics of the
Ehtesab Bureau only resulted in sheer economic backlash.

After several dozen attempts to resolve this issue, Lt. Gen. Zulfiqar
Ali Khan had announced agreement with four IPPs. These included the Southern Electric
Power (Sepcol), Habibullah Coastal, Saba Power and Altern Energy.

According to WAPDA Chairman, negotiations with seven power producers,
including Hub Power Company (Hubco), Kot Addu Power Company (KAPCO), AES Pakgen, Kohinoor
Energy, Liberty Power and Japan Power were at advanced stage.

The IMF and the World Bank managements, tired of repeated promises of
the government to solve this issue, had to put their foot down. Meiko Nishimizu, Vice
President of the World Bank for South Asian Region, had told the finance minister in
Washington to get it done on fast tract basis. Now the government reacted once again by
establishing a new committee headed by the finance minister to solve all IPP-related
issues. Chairman, WAPDA will be the part of this committee. However, Ehtesab Bureau had
been totally isolated in the process. The Bank had told the government to fully implement
the orderly framework agreed with the donors community.

Official sources in the Ministry of Water & Power said that the
government might have to allow few tax concessions to convince IPPs for some tariff
reduction in return. Also, it is being felt that the government has to reverse all its
actions against the IPPs.

The government has to comply with the orders to qualify for the already
delayed $ 280 million IMF tranche.

Meanwhile, the donors have shown resentment over the sudden government
decision to restore old flat electricity tariff rates for agriculturists which was
announced on the final day of talks. Donor representatives in Islamabad have also
reportedly talked to the finance and power ministries officials on the issue as the World
Bank has been stressing for metered electricity in the agri sector for a long time now.
"Lower meter rates might be acceptable to them but a reversal to the flat rate
without any guarantee that agriculturists would pay the bills is certainly confusing for
donors," commented a power ministry official.